Synthesis of Policies, Politics, and Proposals Focused on HEALTH

Medicaid Expansion, A Boatload of Federal Money

Republicans often use the framing of “big government” as a strategy to derail public support for a proposed social policy. This framing tends to work. On average, Americans are much more likely to be concerned about individual freedoms, with limited interference by government, while many Europeans believe in government playing an active role to ensure that nobody is in need. This distinction in values is largely why America stands out among other developed countries as the one nation that does not provide universal health care for its citizens. Not surprisingly, we have heard this framing of big government and “government takeover” time and time again from opponents of the Affordable Care Act (ACA). However, if you know anything about how the ACA (AKA, Obamacare) works, it is certainly not akin to “socialized medicine.”

When we think about the role of government we can think about government as regulator and government as funder. In this way, the ACA did expand the role of government in health care. Today, we are going to focus on the Medicaid Expansion—one aspect of the ACA that embedded new federal regulations and money—a whole lot of federal money—as a means to expand health care coverage for the poor. Interestingly, this also happens to be one of the components of the ACA that many governors (even some Republicans) are concerned about losing.

From Categorical to Universal

The intention of the Medicaid expansion was to provide a guaranteed level of health coverage for the poor, and to create the building blocks of affordable health care coverage. To better understand why this was necessary, let’s start with a bit of background on the Medicaid program. Medicaid was established in 1965 along with Medicare (Parts A and B) to provide a health care safety net for low-income people, but only for those who fell into certain categories. This historical categorical eligibility meant that you needed to both belong to a specific category, such as children, pregnant women, parents, individuals with disabilities, and the elderly, and also meet income tests based on state-specific eligibility, within federal guidelines. For many years if you had little to no income, lacked access to employer sponsored insurance, but did not fit into one of these categories, you were very likely to be uninsured.

As part of the ACA, the Medicaid expansion set out to solve some of the so-called “swiss-cheese holes” problems in health care coverage—in other words, build on existing systems and fill in critical gaps for those historically left out. The Medicaid expansion set income-based eligibility for Medicaid to 138% of the federal poverty level (or $27,821 for a family of three) without any categorical requirement—establishing a true income-based health insurance safety net. Well, at least for those who lived in states that expanded Medicaid.

SCOTUS Makes Expansion Optional

Intended by the authors of the ACA to be a mandatory provision, the Supreme Court ruled in 2012 that the Medicaid expansion was unconstitutionally coercive of states. While the federal government can have strings attached to money it provides to the states, in the case of the Medicaid expansion, the premise was that if states did not expand Medicaid they could lose all of their federal Medicaid money. On this issue, seven justices agreed that this was unconstitutionally coercive because it did not enable states to make a “genuine choice” about accepting the money based on these new conditions, since federal Medicaid money was already flowing. The majority opinion resolved this by saying the federal government could offer these funds to the state, ultimately making it optional for states to implement the Medicaid expansion. To date, 31 states plus DC have expanded Medicaid.

Financing is central to the debate over the future of the Medicaid expansion. Medicaid is jointly financed by the state and federal government. States administer their programs within federal guidelines, and in exchange receive a Federal Matching Assistance Percentage (or FMAP), ranging from 50 to 74 percent. States with higher average per capita income (e.g., Massachusetts) have an FMAP of 50 percent, or put another way, for every dollar the state puts in the federal government also contributes a dollar. In states with lower average per capita income, the federal government carries more of the burden. In Mississippi, FMAP is 74 percent, meaning the federal government covers 74 percent of total Medicaid financing, or for every dollar the state puts in the federal government contributes almost three. So, federal funding for Medicaid is critical, especially for poorer states.

Federal funding provided through the Medicaid expansion is beneficial to state budgets, economies, and revenues. Since expansion states are split with respect to red and blue governorships (see Figure 1 above), it is not surprising that even Republican Governors in expansion states are sounding an alarm:

Governor John Kasich (R-OH) credits the Medicaid expansion with helping the state fight the opioid crisis and providing coverage to 700,000 newly insured people.

Governor Rick Snyder (R-MI) called on Congress to “carefully look at the success we’ve had in Michigan, because we didn’t just do Medicaid expansion,” offering their Healthy Michigan Plan as a model for the country.

Governor Hutchinson (R-AK) wants funding from Obamacare to continue to flow, even if the rules of the Medicaid program change.

So, how will a potential repeal and replace deal with the Medicaid expansion? Not only because of the 11 million people that have obtained coverage through this expansion, but also because of the political backlash of states (particularly red states) losing this federal money. Will the voices of Red state governors make a difference in the fate of the Medicaid expansion?